This invention relates to business systems and, more specifically, to an improved data processing based system for implementing an automated trading market for one or more securities. The system retrieves and stores the best current bid and asked prices; qualifies customer buy/sell orders for execution; executes the orders; and reports the trade particulars to customers and to national stock price reporting systems. The system apparatus also determines and monitors stock inventory and profit for the market maker.
There are various modes of buying or selling ("trading") securities, e.g., common stocks. Aside from inter-party private transactions, stock trading is typically effected on a national or regional exchange, or in what is known as the over the counter ("OTC") market. For either exchange or over the counter trading, there is one or more market maker (called a "specialist" for an exchange) who accommodate the trading wishes of buyers and sellers of securities for which they make a market.
The principles of the present invention are generically applicable to securities trading in any market where the market maker acts as a principal, i.e., fills customer buy orders by selling the security from the market maker's inventory position (long or short), buying to increase a long position or reduce a short position for customer sell orders. For purposes of illustration only, the discussion herein will treat over the counter trading as a discussion vehicle because the largest number of common stocks are traded on this basis; and because major brokerage houses are free to and often do make markets in selected over the counter traded stocks but are restricted in their ability to make a market for stocks listed on an exchange(s) by exchange rules.
It is an object of the present invention to provide an improved data processing apparatus for making an automated market for one or more securities.
More specifically, it is an object of the present invention to provide an automated market making system for qualifying and executing orders for securities transactions.
It is a further object of the present invention to provide automated market making program controlled apparatus which monitors the securities position of the market maker, and which develops and provides information characterizing the market maker's trading profits.
The above and other objects of the present invention are realized in specific, illustrative data processing based apparatus which makes an automated trading market for one or more securities. The system retrieves the best obtaining bid and asked prices from a remote data base covering the ensemble of institutions or others making a market for the relevant securities. Data characterizing each security buy/sell order requested by a customer is supplied to the system. The order is qualified for execution by comparing its specific content fields with predetermined stored parameters. The stored parameters include such as the operative bid and asked current market prices, the amount of stock available for customer purchase or sale as appropriate, and the maximum acceptable single order size.
Once qualified, the order is executed and the appropriate stored parameters are updated. The system provides inventory (position) control and profit accounting for the market maker. Finally, the system reports the executed trade details to the customer, and to national stock price reporting systems. Upon a change in the quoted price for a security, the system updates all relevant order qualification parameters.